BUDGETARY CONTROL PRACTICES ON THE PERFORMANCE OF AN ORGANIZATION IN ILORIN METROPOLIS OF KWARA STATE A CASE STUDY OF SELECTED MICRO-FINANCE BANKS

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

The process of preparing and using budget to achieve organizational objectives is simply called “budgeting”. Budgeting is an important element which is crucial to management accounting technique which can benefit all aspect of business if it is thoroughly understood and properly deployed. The growing complexity of the business environment and the ever increasing competition among firms in the modern time makes planning and budgeting inevitable tool for business success (Lucey 2010). Successful organizational management is no longer just a matter of flair, skill and determination, a conscious effort is needed to harness available resources towards the achievement of organizational objectives (Pandy, 2008). Therefore budgeting is one of the tools adopted by management for effective cost planning, control and increase in productivity.

Wildarsky (2010) argued that because a budget serves diverse purposes, it means different things to different people, among the various possible interpretations given by him include; it is a plan, it is a prediction, and it is a link between financial resource and human behaviour to accomplish organizational objectives. Also, it is a mechanism for making choices among alternative expenditure. Rufus Wizon (2012) opined that without a budget a business may aim less and ultimately fail. Even with a budget a business organization may not reach its planned objectives or destination, but effective budgetary control practices will note the deviation from the plan and thus provide the opportunity for necessary corrective action. The making of such plans and the continuous review and execution are the essence of budgetary control. Batty (2006), defined budgetary control as a system which uses budgets as a means of planning and control-ling all aspects of producing and or selling commodities or services. This is true as we tend to prepare revenue and expenditure variance analysis to be able to deduce areas of divergencies for which the management needs to watch to avoid embarrassment as any adverse variance will translate into inability to meet the corporate objective which will eventually lead to disagreement with stakeholders.

STATEMENT OF THE PROBLEM

In recent times, business organizations have performed poorly due to the fact that they lack effective and efficient budgets and budgetary control systems and practices to adequately and judiciously allocate resources to meet organizational goals, and maximize performance. A study conducted by Boquist (2001) observed that companies continue to perform poorly and fail because they have flawed budgetary planning and control systems, which they apparently fail to recognize. Some firms sense weakness of their budgetary analysis but viewed them as individual problems rather than systematic deficiencies. They misdirect efforts and produce greater frustration. As a result, corporate strategy and capital allocation become misaligned and remain so, despite disapproving financial performance.